Board cannot approve expenditures via email
Q. The board of our condominium association has regularly scheduled quarterly open meetings. Nonetheless, there are expenditures that need approval between open meetings. These expenditures are approved by email communications between board members. Then, at the next open board meeting, the board ratifies the approval of these expenditures. I have looked at some of your past columns, and I have doubts about how the board is handling this. Are my doubts justified?
A. Your concern is absolutely justified. The board’s actions here are contrary to the Illinois Condominium Property Act, as held by the appellate court in the case commonly referred to as Palm II.
The board must make expenditure decisions at open board meetings. That is, board members may not take votes among board members by email between board meetings, and there is no authority for a board to approve expenditures between meetings and to later ratify them. There is an exception for “emergency” decisions as defined by the Act; however, it is not often triggered.
The board of the association here is either going to have to meet more frequently to approve expenditures, or delegate a board member to make decisions between meetings. This delegation must be made by adopted motion at an open board meeting, and the motion should require any between-meeting decisions to be reported on and reflected in the minutes of the next board meeting.
Q. The board of our condominium association sends out an annual budget with line item expenses enumerated into categories, like landscaping, electricity, etc. Our board secretary insists that the budget distributed to homeowners is just a “guide.” In other words, in the view of the Secretary, the budget is just created to establish a lump sum of assessment money that can be spent any way the board decides. This practice leads to overstating line item expenses to create “slush” funds for projects not included in the budget or communicated to unit owners.
How obligated is the board to keep expenses within line items forecast in the budgets they distribute? When and how can they move money around? And shouldn’t these moves be voted at in an open meeting and recorded in the minutes?
A. The budget is a “best guess,” based on past experience, particular needs in the budget year and cost estimates. To some extent, the budget is a guide as it would be virtually impossible to prepare a budget with absolute precision. While there may be variations between actual expenses and budgeted expenses for budgeted items, and assessment income can generally be used to pay the actual expense in a budgeted category, the assessment income can’t simply be used any way the board determines.
For example, any common expense not set forth in the budget must be separately assessed against all unit owners, and assessments for additions and alterations to the common elements or to association-owned property not included in the adopted annual budget must be separately assessed and are subject to approval of two-thirds of the total votes of all unit owners.
As noted in the prior question, expenditures generally need to be approved at a board meeting. This will allow owners to see how funds are actually being spent.
Moreover, the board must annually supply to all unit owners an itemized accounting of the common expenses for the preceding year actually incurred or paid, together with an indication of which portions were for reserves, capital expenditures or repairs or payment of real estate taxes and with a tabulation of the amounts collected pursuant to the budget or assessment, and showing the net excess or deficit of income over expenditures plus reserves. This will be a good “report card” to the owners as to how well the board budgets.
• David M. Bendoff is an attorney with Kovitz Shifrin Nesbit in the Chicago suburbs. Send questions for the column to him at CondoTalk@ksnlaw.com. The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.